Serious Fraud Office Investigates Rolls-Royce

LONDON -- The shares of Rolls-Royce  (LSE: RR  ) dived 42 pence, or 5%, to 871 pence in early London trade this morning after the engineer admitted it was being investigated by the Serious Fraud Office.

The FTSE 100 (UKX) member said it had passed information to the SFO "relating to concerns about bribery and corruption involving intermediaries in overseas markets."

Rolls-Royce said the investigation followed a request for information from the SFO about allegations of malpractice in Indonesia and China. The company added that its own internal investigations had identified "matters of concern" in Indonesia, China, and other overseas markets.

Rolls-Royce said that it was too early to predict the consequences of its disclosures to the SFO, but acknowledged the outcome could include the prosecution of individuals and of the company.

The blue chip also mentioned this morning that it had "significantly strengthened its compliance procedures in recent years" and "will appoint an independent senior figure who will lead a review of current procedures."

John Rishton, Rolls-Royce's chief executive, said: "I want to make it crystal clear that neither I nor the Board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance. This is a company with exceptional prospects and I will not accept any behavior that undermines its future success".

Prior to today, City experts were expecting Rolls-Royce's current-year earnings to advance 17% to 57 pence per share and the dividend to climb 13% to 19.7 pence per share. The projections currently place the company on a P/E of 15.3 and yield of 2.2%.

Whether today's bribery revelations, share-price reaction and current valuation combine to make Rolls-Royce a buy remains up to you.

However, the group could be one for your watch list, given underlying sales and profits both gained about 45% during the tricky economic period between 2007 and 2011.

If you are seeking other FTSE names for your watch list, this special free report could assist your investment research. The report reviews eight large-caps currently favored by Neil Woodford -- the City equity-income legend who has thrashed the FTSE 100 during the 15 years to October 2012 by favoring dividend-paying blue chips.

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